Successful implementation of prognostics in health monitoring for aerospace structures and engines requires not only physically based prognostics models that capture the evolution of damage, but also observability of critical damage, usage, and precursor states. This paper focuses on specific limitations of conventional methods for sensing stress, fatigue, corrosion and thermal damage in typical aerospace applications. One goal of this paper is to establish the need for advanced sensor development targeted at these limitations. This paper also describes specific innovations using the MWM-Array sensor technology that offer enhanced observability for specific applications. Finally, a framework for life cycle management of aerospace systems, called adaptive damage tolerance (ADT) is described. ADT begins with the design of systems for enhanced observability, then integrates conventional damage tolerance methods with prognostics and health management (PHM), condition based maintenance (CBM) and the concept of life control actions to extend component and system life while maintaining acceptable safety margins.